August Newsletter

As summer heat continues to grip the nation, the business of staying cool with better financial knowledge can help us all. Unfortunately, with the Supreme Court’s ruling regarding the Health Care Reform Bill, the political climate is anything but cool. This month’s newsletter discusses the impact of the recent Supreme Court ruling, reviews a recent agreement on student loan interest rates, and explains an interesting trend called “hospitality exchanges”.

What the Health Care Reform Ruling Means

401K fee disclosures delayed The Supreme Court’s recent ruling regarding the constitutionality of the Health Care Reform Law means the provisions within the bill will continue as passed by Congress. So what does this mean for you?

Health Care Bill of Rights Remains Intact.

The provisions of the bill required changes in health insurance coverage for most Americans. As a reminder, some of the key provisions include:

Check Elimination of no coverage for pre-existing conditions. This change currently applies to children under age 19 and rolls out to all Americans beginning in 2014.
Check Elimination of Arbitrary Rescission of Coverage.
Check Elimination of lifetime limits for health care coverage
Check Phase-out of annual dollar limit payments for insurance claims. The annual limit is $2 million in 2012-13 and no limits beginning in 2014
Check Protecting your choice of doctors
Check Elimination of insurance restrictions for emergency services

There are also a number of other provisions in the bill including required health coverage, state health exchanges, and other small business requirements.

How to Pay for it?

While there are many projections being made as to what all this additional coverage will cost, the law will start implementing the provisions introduced to pay for the bill next year. Key among these provisions:

1 Medicare payroll tax increase. Beginning in 2013, taxpayers with incomes above $200,000 ($250,000 if married) will see their Medicare taxes increase by 0.9% of their pay.

2New Medicare Net Investment Tax. Beginning in 2013, taxpayers with income above $200,000 ($250,000 if married) could see a 3.8% Medicare surtax on their net investment income. Investment income is typically interest, capital gains, royalties, annuities, and rent.

3Uninsured Tax Penalty. Beginning in 2014, non-exempt workers are required to maintain a minimum level of health insurance. If you do not have the required insurance there is a penalty of:

Year The greater of: Or the percent of excess household
income over a threshold amount:
*This will be indexed to inflation each year there-after

There are exemptions to this penalty that include:

Check no penalty if you are below the tax filing income thresholds
Check hardship exemptions
Check religious exemptions
Check 3 month or less of non-coverage is penalty-free
Check any uninsured individual under age 18 pays 1/2 of the full penalty fee

What You Need to Know

It is important to be prepared for the next phase of implementation of the Health Care Reform Law.

Check If you have potential excess investment income you should conduct tax planning sessions. There may be moves that could minimize your exposure to the Medicare surtax.
Check If you do not have health insurance, explore insurance alternatives to avoid the penalty. States are implementing health care programs and there are insurance premium credits for those that need help.
Check Small businesses need to review their plans too. There is also a potential penalty for small businesses that do not offer minimum health insurance to their employees. If this may impact you, please review your options.
Check Watch the political climate. Both parties wish to make changes to the Health Care law, so be prepared for changes to take place in late 2012 and early 2013.

Hospitality Exchanges

Catching the FREE Travel Wave

401K fee disclosures delayedSo you want to see the world but do not have a lot of money? What can you do? One option, that has been used by millions over the past decade, often allows you to stay FREE in virtually any city of your choice. You simply join a hospitality exchange community.

What is a Hospitality Exchange?

Per Wikipedia, a hospitality exchange or home stay network is “an organization that connects travelers with local residents in the cities they’re visiting.” In the purest form there is no money exchanged. You simply sign up as a member to a service, create your profile and then either become a host or a guest to others in the network. The more information you provide, the more likely you will be trusted and accepted by others in the network. As a host you might simply provide a place to sleep or you might provide a local experience to a fellow traveler new to your country or city.

These networks can get very detailed and involved. As a community they often organize events, provide feedback/rankings on places to go, and provide ratings of fellow members.

There are a number of hospitality exchanges that have popped up over the past decade with the largest being with over 4 million members. Here is a list of some of them:

Est. Members Organization
CouchSurfing Project
Hospitality Club
Evergreen Bed and Breakfast Club
Affordable Travel Club
Pasporta Servo
Hospitality Exchange
Casa Casa

Why use a Hospitality Exchange?

Circle It saves money. If you are traveling extensively you can save a lot of money on hotel rooms by crashing on a spare bed or couch.
Circle You get out of the tourist bubble. Instead of hopping from one tourist stop to another, staying with a local can give you a more realistic experience of a city when seen through the eyes of a local resident.
Circle You gain connections throughout the world. The social network allows you to connect with people that sound interesting to you. Many of the members in these exchange communities form long-lasting friendships.
Circle It makes the world smaller. Perhaps CouchSurfing says it best:

“At CouchSurfing, we envision a world where everyone can explore and create meaningful connections with the people and places they encounter. Building meaningful connections across cultures enables us to respond to diversity with curiosity, appreciation and respect. The appreciation of diversity spreads tolerance and creates a global community.”

Are There Problems?

Hospitality exchanges are not for everyone.

Circle Safety. You are staying with someone you have never met. While the exchanges try to weed out bad members from their communities, there is always the chance you have a bad encounter.
Circle Hippie Factor. In the early phases of this renewed social phenomena, those who used this network tended to be younger travelers. In addition, this travel concept tends to attract more “free spirit” types than the traditional travel crowd. This however, is changing as social networking attracts a broader segment of the population.
Circle Hidden Agendas. Sometimes the exchange is more interested in collecting and building their network than in serving as a means of connecting travelers with hosts.
Circle Privacy Issues. Your privacy is often the currency of these services. Some services do not allow you to delete your information, images, or emails from their service…ever. If privacy is important to you, read the fine print before you join.
Circle It’s only for Young People. The average age of people using hospitality exchanges tends to be between 18 – 29 years old. But this is changing as the service matures and additional services are added to the exchange.

While hospitality exchanges may not destroy the hotel industry, it certainly appears to be growing in popularity and it could impact how each of us experiences travel in the future.

Student Loans Get a Robin Hood Deal

Shuffling the cards makes winners and losers

401K fee disclosures delayedMuch in the press has highlighted the “victory” of keeping the interest rates on Stafford student loans from doubling to 6.8%. The 3.4% interest rates seems like a victory to the millions paying back their student debt. But is it really? Here is the full picture:


Part of the deal Congress struck to expand the National Debt, was an agreement to rein in spending to curb the 40 – 60% excess annual spending over annual federal receipts. A super committee including representatives from each party met for months to determine how to cut spending to pre-agreed levels. While the spending cuts were minor relative to annual spending, the committee failed to reach an agreement. Anticipating this roadblock, Congress set some “automatic” spending cut levels that are now being faced throughout the government.

Student Aid Programs were not immune to these cuts and the popular Stafford Loan program was scheduled to have its interest rates doubled from 3.4% to 6.8%. With national student debt now exceeding credit card debt, this dramatic change in rates was quickly placed in the crosshairs of public opinion.

The Deal

In a deal announced in early July, 2012, the Democrats and Republicans agreed to extend the 3.4% interest rate for another year. Per the U.S. Student Aid Association, this change will save upwards of $1,000 per student and will help an estimated 7.4 million students who rely on this program. But this is only part of the story, as other cost cutting measures offset this interest rate extension. Here are the other provisions worth noting:

Check The 3.4% rate is temporary. In twelve months the rates will once again be doubled, this despite the historic low interest rate on mortgages and the low cost of funds available to all lending authorities. The IRS’ own interest rate publication called “AFRs” suggests a reasonable long-term loan rate in the low 3% range.
Check Graduate Students are Omitted. The lower rate is now only available to undergraduate students. Graduate students must now pay the doubled rate.
Check Grace Period….gone. Prior programs included subsidized interest payments while in school and for a 6-month grace period after leaving school. These grace periods are now gone.
Check Repayment incentives…gone. Gone too are the repayment incentives to encourage early loan repayment for loans originated after 7/1/2012. While older loans will still have this provision, this enhanced repayment incentive is no longer available to new borrowers.
Check Harder to Receive the Maximum. Other changes limit the amount of funding available, restrict the number of eligible semesters and generally make it more difficult to qualify for funding.

As the election date draws near, expect to hear more about proposed changes in this area as the high annual increases in the cost of college meet head-on with the need to trim the national deficit and the related cost of educational funding programs.

As always, should you have any questions or concerns regarding your situation please feel free to call.

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